A family of differential input demand systems with application to Greek agriculture

This paper develops a family of input demand systems via alternative parame trisations of Theil's differential model. Each member of this family is as flexible as any other locally flexible functional form. More importantly, s election among the competing family members is possible via simple paramete r restrictions. The family of differential input demand systems is applied to the agricultural sector in Greece for the period 1961-96. Formal tests s uggest that the model with the CBS-type effects dominates the alternative m odels. Divisia and price elasticities are calculated from the selected mode l and a decomposition of changes in the demand for inputs into technical ch ange, total input volume, substitution, and residual effects is performed. The empirical results are quite reasonable. Overall, the analysis in this p aper indicates that, in certain cases, the differential approach may provid e an attractive alternative to the dual approach in modelling production be haviour.